REQUEST FOR ARBITRATION AND STATEMENT OF CLAIM UNDER THE UNCITRAL ARBITRATION RULES AND SECTION B OF CHAPTER 10 OF THE UNITED STATES - PERU FREE TRADE AGREEMENT NATIONALS OF PERU VICTIMIZED BY THE STANFORD PONZI SCHEME INVESTORS / CLAIMANTS and THE GOVERNMENT OF THE UNITED STATES OF AMERICA PARTY / RESPONDENT Pursuant to Article 10.16(1)(a) of the United States - Peru Free Trade Agreement (“USPFTA”), the Claimants hereby serve this Request for Arbitration and Statement of Claim for the non-compliance of the Government of the United States of America (the “U.S.A.,” the "United States" or the "Respondent") with certain of its obligations under the USPFTA. I. NAME AND ADDRESS OF THE DISPUTING INVESTORS 1. Pursuant to powers of attorney granted by each claimant to his, her or its respective attorney, the addresses for the Claimant/Investors are as follows: For the Claimants listed in Appendix I, Tab A: c/o: Mr. Edward F. Valdespino Strasburger & Price, LLP 300 Convent Street, Suite 900 San Antonio, Texas 78205 For the Claimants listed in Appendix I, Tab B: c/o: Mr. Peter Morgenstern Butzel Long, A Professional Corporation 380 Madison Avenue, 22nd Floor New York, NY 10017 II. BREACH OF OBLIGATIONS 2. The Claimants allege that the United States has acted inconsistently with its obligations under Section A of Chapter 10 of the USPFTA, with respect to the following provisions: i) Article 10.3 – National Treatment; ii) Article 10.4 – Most-Favored-Nation Treatment; and iii) Article 10.5 – Minimum Standard of Treatment. 3. In relevant part, the text of each applicable USPFTA provision is as follows: Article 10.3. National Treatment 1. Each Party shall accord to investors of another Party treatment no less favorable than that it accords, in like circumstances, to its own investors with respect to the establishment, acquisition, expansion, management, conduct, operation, and sale or other disposition of investments in its territory. 2. Each Party shall accord to covered investments treatment no less favorable than that it accords, in like circumstances, to investments in its territory of its own investors with respect to the establishment, - 2 - acquisition, expansion, management, conduct, operation, and sale or other disposition of investments. Article 10.4. Most-Favored-Nation Treatment 1. Each Party shall accord to investors of another Party treatment no less favorable than that it accords, in like circumstances, to investors of any other Party or of any non-Party with respect to the establishment, acquisition, expansion, management, conduct, operation, and sale or other disposition of investments in its territory. 2. Each Party shall accord to covered investments treatment no less favorable than that it accords, in like circumstances, to investments in its territory of investors of any other Party or of any non-Party with respect to the establishment, acquisition, expansion, management, conduct, operation, and sale or other disposition of investments.2 Note 2: For greater certainty, treatment “with respect to the establishment, acquisition, expansion, management, conduct, operation, and sale or other disposition of investments” referred to in paragraphs 1 and 2 of Article 10.4 does not encompass dispute resolution mechanisms, such as those in Section B, that are provided for in international investment treaties or trade agreements. Article 1105. Minimum Standard of Treatment3 1. Each Party shall accord to covered investments treatment in accordance with customary international law, including fair and equitable treatment and full protection and security. 2. For greater certainty, paragraph 1 prescribes the customary international law minimum standard of treatment of aliens as the minimum standard of treatment to be afforded to covered investments. The concepts of “fair and equitable treatment” and “full protection and security” do not require treatment in addition to or beyond that which is required by that standard, and do not create additional substantive rights. The obligation in paragraph 1 to provide: (a) “fair and equitable treatment” includes the obligation not to deny justice in criminal, civil, or administrative adjudicatory proceedings in accordance with the principle of due process embodied in the principal legal systems of the world; and (b) “full protection and security” requires each Party to provide the level of police protection required under customary international law. Note 3: Article 10.5 shall be interpreted in accordance with Annex 10-A. Annex 10-A Customary International Law - 3 - The Parties confirm their shared understanding that “customary international law” generally and as specifically referenced in Article 10.5 results from a general and consistent practice of States that they follow from a sense of legal obligation. With regard to Article 10.5, the customary international law minimum standard of treatment of aliens refers to all customary international law principles that protect the economic rights and interests of aliens. III. FACTUAL BASIS FOR THE CLAIM 4. The Claimants allege that the Respondent failed to provide even a rudimentary level of protection or legal security to them as Peruvian investors in the Houston, Texas-based Stanford Financial group of companies, which directly led the Claimants to lose their investments as the victims of a massive United States based Ponzi scheme. The decision taken by U.S. regulatory officials to “do nothing” after identifying the fraudulent nature of the Stanford enterprise violated the legitimate expectations of these investors and discriminated against them on the basis of their foreign nationality. The Investors and their Investments in the Territory of the United States 5. The Claimants are all nationals of Peru,1 each of who made investments in and through the Stanford Financial Group of companies in the United States, primarily in (what were later revealed to be) fraudulent certificates of deposit issued by Stanford International Bank (“SIB CDs”), an Antiguan-based instrumentality of the Stanford Financial Group of companies (“SFG”) which was managed and controlled, and had its principal base and center of main interest, in the United States. 6. SFG was established and operated by Allen Stanford - and others - for the purpose of defrauding investors, primarily foreign nationals from Latin America, including the Claimants. As the fraud expanded, the targets of SFG’s scheme expanded to include U.S. and foreign nationals from other parts of the world. The scheme involved SFG’s principals (primarily Allen Stanford) directing a portion of the funds invested to pay returns to earlier investors, while absconding with the remainder. In short, it was a classic “Ponzi scheme.” 7. SFG’s principals induced Latin American foreign investors, including the Claimants, to invest with SFG by touting SFG as a U.S. operation with FINRA registration, SIPC insurance coverage, and protected by the celebrated credibility of the U.S. financial regulatory system.2 As part of the sales pitch they received, the Claimants were repeatedly assured that they were investing with broker-dealers licensed (and therefore regulated) by the United States Securities and Exchange Commission (“SEC”). A Shocking and Egregious Story of Systemic Regulatory Failure 1 Further to USPFTA Art. 10.16(2)(a), unless otherwise indicated any enterprise identified as a Claimant in this document, or its appendices, was established under the laws of Peru. 2 FINRA is the United States Financial Industry Regulatory Authority. SIPC is the United States Securities Investor Protection Corporation. - 4 - 8. The Respondent has reaped the benefits of inbound foreign investment for many decades, thanks in no small part to the stellar reputation of its financial regulatory regime. The high esteem in which United States financial regulators were held seemed well deserved to the Claimants, abetted as it was by regular updates from the SEC itself, which still promotes its enforcement victories on its web site. It was not until the financial crisis of 2008-2009 that the truth began to emerge. Since that time, report after report revealed deep fissures running through the façade of strength and reliability long portrayed about U.S. financial markets, and about the government officials who police them. 9. Referring to itself as "the Investor's Advocate," the SEC publicly confirms that its "primary mission [is] to protect investors and maintain the integrity of the securities markets" and that its "enforcement authority" is "critical to the SEC's effectiveness." Exchange Commission (SEC) is to protect investors and maintain the integrity of the securities markets. As more and more first-time investors turn to the markets to help secure their futures, pay for homes, and send children to college, these goals are more compelling than ever. On a web page entitled "How the SEC Protects Investors and Maintains Market Integrity," it has explained: [The Securities Act of 1933 and the Securities Exchange Act of 1934] were designed to restore investor confidence in our capital markets [following the 1929 stock market crash] by providing more structure and government oversight. The main purposes of these laws can be reduced to two common-sense notions: • Companies publicly offering securities for investment dollars must tell the public the truth about their businesses, the securities they are selling, and the risks involved in investing. • People who sell and trade securities – brokers, dealers, and exchanges – must treat investors fairly